Mg4023 Management | International Business Assessment Answers

(Source: Nestle.com.au. 2018)

Background of Australian Food focused Agribusiness sector: 

Agribusiness is one of the most emerging sectors in Australia which high quality of food. Modernization in the food production system, sustainability in the usage of land along with ample resources like water is making it easy for the sector to attain immense success. According to Jones and Kierzkowski (2018) this is one of the most important sectors, which can have a strong contribution in the improving the economy of the nation by creating larger employment opportunity. Innovation and competitiveness are key factors, playing pivotal role in promoting sustainable growth of the sector. This sector comprises of effective processing of food, food-related agricultural production and manufacturing of the beverages. Brack (2017) observed that in the regional areas, Australian Food focused Agribusiness sector can also has major contribution in the economy. Evidences are showing that during 2015, the rate of employment of this sector is 522,000 and the rate of business trading in the sector is 178,500. During 2014-2015, the rate of value added profit of the industry was $53.9, which is equal to that of the 3% of the total GDP. The productivity of the labor of the sector has been increased by 2.3% (Archive.industry.gov.au. 2018). Currently, Australia is being considered as one of the most significant exporters of food and agribusiness related products.  

Nestle is one of the most promising companies in the dairy industry of Australia. Being the global food and beverage chain, Nestle is extremely committed towards offering the customers with high quality of food products. The fundamental aim of the company is to amplify the quality of life of the people by shaping healthier world. The company offers multiple dairy products such as slim yogurt, slim milk and different kinds of chocolate. Nescafe, milo are also vital dairy products, offered by Nestle. The underlying ambition of the company is to accomplish the sustainable development of goal of UN by 2030, by helping more than 50 million people to lead life in a healthy way. Being the most promising company in the dairy industry, the company is extremely committed towards working with the farmers along with the community in order to offer the customers with high quality of milk products. Milk District Model has also been introduced by them for the sake of attaining innovation in the food processing system (nestle.com.au. 2018).

Identifying different international opportunities of Nestle:

Being the most promising company in Australian food and beverage industry, the company is highly committed towards running their business in the global domain. However, McGovern (2018) showed that it is important to identify Porter’s five forces that can have a firm impact on the internal functionality of Nestle. This is one of the most significant tools, through which the parameters of the industry, in which Nestle is running their business can be evaluated. Subsequent discussion will help in analyzing different parameters in the context of Nestle.

Figure 2: Porter’s five forces model of Nestle

(Source: Burstein and Vogel 2017)

Intensity of competition with the industry:MODERATE

The intensity of competition in the Australian Food and beverage industry is quite moderate due to the existence of business giants like Kraft Foods, Danone, and Hershey’s. However, Luthans and Doh (2018) contended the point of view by saying the fact that  in the food processing industry of Australia, the position of Nestle is very strong which is making it difficult for the companies to rule over Nestle. High quality of product and continuous innovation are two of the major factors, playing significant role in amplifying the position of Nestle in the industry.  

Threat of New Entrants: LOW

The threat from the new companies is considerably low in the context of food processing industry. Due to the intensity of competition in the industry, it becomes quite difficult for new companies to enter in the market and thereby run the business. Lasserre (2017) showed that as the most prominent company in the dairy industry of Australia, Nestle does not face any challenges from the new entrants. Long history about the quality of product and increased satisfaction among the customers are serving Nestle with the ability to attain highest share in the market.   

Threat of Substitute products: MODERATE

The threat from the substitute products is high due to the moderate competition in the food processing industry of Australia. The inclusion of bottled water along with milk based products are increasing the threat from the substitute products. However, increased stress on protecting health and well-being of the people are playing major role for Nestle to overcome the challenges related to threat from substitute products (Rees and Smith 2017).    

Bargaining Power of Suppliers: HIGH

The bargaining power of the suppliers is one of the most significant factors in strengthening the position of a company within the industry. In the context of Nestle, all the products are generally made up from that of the agricultural and dairy related raw materials. According to Durand et al. (2017) therefore, the company is highly committed towards maintaining healthy relationship with the suppliers. The company also focuses on satisfying their financial requirements, which is the key of retaining the best supplier.   

Bargaining Power of buyers: HIGH

This is also a greatest factor in determining the performance level of a firm. The bargaining power of the customers is also high due to the intensity of competition in the market.

Implication:

Based on the Porter’s five forces analysis, it can be said that the opportunities for Nestle to run the business in the international domain is extremely high. In the intense competition in Australia, Nestle is still holding a strong position in the market due to the inclusion of high quality of products. Bartlett and Beamish (2018) observed that constant innovation is also a greatest factor for Nestle to stay aside from that of the competitors. Strong communication with that of the suppliers is serving Nestle with the ability to retain effective suppliers and thereby get high quality of raw materials. There lies the reason, for which is becoming able to produce super quality of products as per the requirements of customers. Optimum innovation and creativity can also pave the way for Nestle to run their business in the international domain.    

Suitable international strategies of Nestle:

With the rapid development of globalization, the need of outsourcing business is also accelerating in a drastic manner. This is the key of gaining international recognition and thus run the business in a cost effective manner. As a promising company, Nestle should be focused towards employing international business strategy. Rugman and Verbeke (2017) argued on the ground that it is true that, currently, the company is operating the business in more than 100 countries across the world, still, implementation of international business strategy can make it easy for Nestle to expand their business in much wider business domain. Multi-domestic is one of the most significant international business strategy, which can help the companies to satisfy the need of local market across the world, by customizing their products or services. With the assistance of this strategy, Nestle can be able to decentralize their organizational structure, which is the key of running business independently and autonomously. In addition, Chen et al. (2018) showed that multi-domestic strategy can also support the companies like Nestle to execute unique sales and marketing approach.

Transnational is anther vital international business strategy, which intends to strengthen the local responsiveness and thus acquire benefit from the global integration. Successful implementation of this type of international business strategy can help Nestle to generate economics of scale, which is very much needed in order to ensure the flexibility of value chain. Tjemkes et al. (2017) observed that through this strategy, Nestle create a strong network of subsidiaries around the world. This is the way, through which the company can exchange the knowledge around the globe, which is very much needed to accomplish the strategic objectives.    

Discussion about the appropriate and inappropriate mode of entry in the international market:

Mode of entry can be defined as the channels, through which the companies can enter in the international market with utmost efficiency. There are multiple ways, by which international market can be accessed.  Licensing is one of the greatest ways, through which a new market can be penetrated. Licensing is defined as a legal agreement, through which a company can offer their proprietary assets to that of the foreign companies with the exchange of royalty fees.  As per the discussion of Lasserre (2017) this is the way, through which Nestle can also protect their intellectual property by accessing safe and secured distribution channel. With the assistance of licensing, Nestle can carry out in-depth research and development, which is very much needed for making the products more accountable among the customers. In addition to that, Brack (2017) also highlighted that licensing can also help Nestle to access most appropriate market and distribute their product in an appropriate manner.   

Joint venture is also a vital way, through which new market can be accessed. This can be regarded as the way of maintaining partnership with the other companies in order to exchange resources and thus attain success for business. However, Hill (2014) argued by saying that due to different rules and regulation of different companies, the flexibility of Nestle can be restricted. Being a leader in the food processing industry, such lack of flexibility can hamper the hamper the consistency of the business process of Nestle.   

Conclusion

Based on the discussion, it can be concluded by saying that in the volatile business environment, outsourcing business is very much needed in terms of gaining international recognition. Nestle is one of the most famous companies in the Australian Food focused Agribusiness sector, it is imperative for them to employ international business strategy. It is true that the intensity of competition in Australia is high. Still, the quality of product along with constant stress on innovation are playing major role for Nestle to secure their position in the market. However, as the uncertainty in the Australian food processing industry is increasing in a rapid manner, Nestle should execute a comprehensive marketing plan. The company should divide their market into different tiers, which can help them to explore the international territories that can drive their rate of profit margin.

The accountability of a company in the local market plays a significant role in determining the success of global business. Therefore, it is recommended for Nestle to understand the need, attitude along with the culture of local customers. This is the way, through which products can be produced in accordance with the local trend. Nestle can develop a local marketing team for the sake of assessing the choice of local people. It is suggested for Nestle to make a flexible business plan, which can help them to cope up with the cultural differences of different countries. Socializing a comprehensive marketing plan can also help Nestle to determine the future strategic direction.  The marketing plan is to be conveyed with the international team, which is the key of keeping them informed regarding the activities that are to be undertaken to expand their business in the international domain.       

Reference List:

Archive.industry.gov.au. 2018. About the Food Processing Industry. [online] Available at: https://archive.industry.gov.au/industry/IndustrySectors/FoodManufacturingIndustry/Pages/About.aspx [Accessed 4 Oct. 2018].

Bartlett, C.A. and Beamish, P.W., 2018. Transnational Management: Text and Cases in Cross-border Management. Cambridge University Press.

Brack, D., 2017. International trade and the Montreal Protocol. Routledge.

Burstein, A. and Vogel, J., 2017. International trade, technology, and the skill premium. Journal of Political Economy, 125(5), pp.1356-1412.

Chen, X., Chen, A.X. and Zhou, K.Z., 2018. Strategic orientation, foreign parent control, and differentiation capability building of international joint ventures in an emerging market. Journal of International Marketing, 7(3), 89-120.

Durand, R., Grant, R.M. and Madsen, T.L., 2017. The expanding domain of strategic management research and the quest for integration. Strategic Management Journal, 38(1), pp.4-16.

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.

Jones, R.W. and Kierzkowski, H., 2018. The role of services in production and international trade: A theoretical framework. World Scientific Book Chapters, 8(3), pp.233-253.

Lasserre, P., 2017. Global strategic management. Macmillan International Higher Education.

Luthans, F. and Doh, J.P., 2018. International management: Culture, strategy, and behavior. McGraw-Hill.

McGovern, E., 2018. International trade regulation (Vol. 2). Globefield Press.

Nestle.com.au. 2018. [online] Available at: https://www.nestle.com/brands/dairy/dairycsv [Accessed 4 Oct. 2018].

Rees, G. and Smith, P. eds., 2017. Strategic human resource management: An international perspective. Sage.

Rugman, A. and Verbeke, A., 2017. Global corporate strategy and trade policy. Routledge.

Tjemkes, B., Vos, P. and Burgers, K., 2017. Strategic alliance management. Routledge.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management and business policy. pearson.